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Section 125 nondiscrimination testing; concentration test


Guest Timothy A. McAfee

  

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  1. 1. Section 125 nondiscrimination testing; concentration test

    • Salary deferrals alone are subject of test.
      3
    • Salary deferrals and employer direct payments are subject of test.
      1


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Guest Timothy A. McAfee

In performing the concentration test, don't I look soley to the salary deferrals under the Section 125 plan? In the instant case, health insurance premiums are split between the employer and employee, with the employee's portion coming from salary deferrals under the plan and the employer's portion paid directly by the employer. The employers controller has taken the position that since the employer must report the total premiums paid by both the plan and the employer on Schedule F of Form 5500. the testing should be calculated on total premiums, not just those paid by the plan. I read IRC Section 125(B)(2) to relate the concentration test to benefits "under the plan".

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Guest Dick Boever

Harry Beker of the IRS stated at the ECFC Conference in March 1999 that the "but for" rationale should be used for the purposes of applying this test. He stated, if the employer pays a portion of the health insurance premium only if the employee pays a portion with pre-tax dollars, then both employer and employee amounts should be counted.

This is discussed briefly in the EBIA Cafeteria Plan Guidebook. They used both ER and EE amounts in their example.

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